Blame Canada: High Oat Prices Edition

At the grocery today I went to get some oats from the bulk bins to make muesli and I was hit with some unwelcome sticker shock. 89¢ a pound! That’s up from 69¢ a pound for as long as I’ve been paying attention (a little over a year). For those counting on their fingers and toes, that’s a 28% increase. An increase in the cost of my staples is a real punch in the gut right about now for an aspiring food wonk who needs a job (hint, hint Corby Kummer). When I got home I needed to know what my supermarket was trying to do to me.

Feb 6 (Reuters) – The U.S. oat market soared to an all-time high on Thursday, ignited by a razor-thin supply of oats moving into the United States from top exporter Canada in the wake of logistical nightmares. Chicago Board of Trade oat futures rose the 20-cent daily trading limit – notching a record high of $4.63-1/4 a bushel and surpassing the previous record of $4.59-3/4 set in August 2008. That topped a month-long rally, with oats climbing 35 percent since early January.

Extreme cold and heavy snowfall this winter has caused railroads to run shorter trains and slowed movement of bulk commodities, crude oil as well as grains, out of Canada. The harsh weather, coupled with record-large Canadian wheat and canola harvests, has overwhelmed the Canadian National Railway Co and Canadian Pacific Railway Ltd, resulting in a shortage of some 40,000 grain hopper cars needed to move crops to port or U.S. customers.

. . . “In the prioritization of who gets railcars, grain isn’t on the top of the list – it’s not the highest revenue. And within the grain list, oats is not at the top of that list either,” McCambridge said. “Supplies could be tight for some time.” The United States imports more than half of the 160 million bushels of oats it uses annually to produce breakfast foods and snacks as well as feed for livestock. Oats are mostly fed to horses but they are also finding their way into pig diets this winter to help fight off the effects of a deadly pig virus, Porcine Epidemic Diarrhea virus, or PEDv, analysts said.

There’s little I can do about the snow in Canada that happened back during the winter. I wonder if I can get my hog farmer friends to switch to something besides oats to fend off PEDv. Or maybe I could convince some of my Midwest corn and soy farmer friends to work some oats into their rotations. Hmmm.

“The best incentive for Iowa farmers is to consider oats as a great break crop for corn/soy rotation issues,” he said in an email. “There are benefits to a longer rotation, breaking up the disease and insect patterns developed in a two-crop rotation.”

Brunner said he’s seen a bump in corn yields following oats. A 10-year ISU study of oats in rotation with corn and soybeans showed that yield bump is real, Smith said. Farmers were also able to cut back on fertilizer, reduce pesticide use, herbicide use and insecticide. With the increased yields and moderate market price, the three-year rotation was more profitable than just corn-soybean, the study said.

Recently, price jumps provided another incentive for oat growers.

Ten years ago, oats were $1.50 a bushel. In February, Chicago Board of Trade oat futures hit a record high of $4.63/bu. Canada had a huge crop this year, but due to the extreme cold and additional tonnage the railroads had to move, most of the crop is still sitting in farm bins, Raser explained. Those logistic issues drove the CME oat market this winter. “The market for oats was really hot, and it’s settled down, but you can still get oats right now about the same price as corn,” Brunner said.

Without those huge jumps in prices, though, it can be hard to make much of a profit on oats.

Nevertheless, demand for oats has been falling for nearly a century, ever since mechanized equipment started taking over for horses on farms and roads. In fact, global acreage devoted to oats has fallen by 58 percent just in the past decade, according to General Mills. That’s in part because oats aren’t a particularly efficient or profitable crop. It takes more seed to produce an acre of oats than it does to produce an acre of other major crops, like corn. According to the USDA’s Economic Research Service, the average revenue per acre of corn in 2012 was $1,073. For soybeans, it was $596. For oats, it was a mere $245.

So … maybe not. But if an oat rotation can lower pest pressures for corn and soy farmers, maybe that could convince my friends to start making their own muesli and drive up demand. Consider:

. . . another reason for the lack of research into genetic modification: oats are pretty hearty as it is, compared to other crops. They dominate fields and keep weeds out, and they generally need less herbicides and pesticides than other similar grains.

So

There’s a lot at stake here. It’s not just about me and my muesli. The future of the planet may depend on everyone making there own muesli.

Consider that the relative energy efficiency of oats:

That slide is taken from this talk by geophysicist Gidon Eshel.
I’ve queued it to where he starts and it runs around 25 minutes. The slide is sourced from Diet, Energy, and Global Warming by Eshel and Pamela Martin.

For every unit of fossil fuel energy put into growing a crop they have computed the output as a percentage. Lamb 1%, beef 14%, chicken 22%, tomatoes 60%, apples 110%, oats 500%. (At 250% and 400% corn and soy are no slouches in the energy efficiency department. They aren’t staple crops for nothing.)

In addition to being a super fossil fuel efficient source of calories, oats are a nutritional workhorse.

So really, thanks a lot Canada, we appreciate the oat shortage.

[Editor’s note: Please see a follow up post by Ron Rein, a Canadian oat farmer.]

7 responses to “Blame Canada: High Oat Prices Edition”

Marc,
Interesting situation. One of the main reasons that US farmers are unlikely to include oats in their rotation is that so much farmland is rented on an annual cash basis. The rental market is driven by the most profitable crop, so even when there are longer-term rotational benefits, it just not feasible put a lower value on land you might or might not get to rent later. This is a barrier to wider adoption of other best practices as well. This land is mostly still in the families that once farmed it but who now live in the cities and have virtually no connection except to collect their rental income from some land management company